USE THE BELOW TO ANSWER QUESTIONS 1-3 Assume that you completed your audit fieldwork on the Dundler Miflin (DM) audit (year-end is October 31, 2019) on December 24, 2019. You learned that a lawsuit was launched against DM on December 22, 2019. They are being sued for $400,000 by a customer after they were seriously injured with a six-inch paper cut on November 2, 2019, that required multiple surgeries and left him with significant medical expenses. Through inquiries of management, you learn that they believe the claim/lawsuit has a remote likelihood of an unfavorable outcome and thus need not be disclosed in the F/S or F/S notes. You send an attorney inquiry letter, and the attorney indicates that they believe that the likelihood of a negative outcome on the claim is more than remote but less than probable. If the claim is successful, they estimate the damages to be in the range of $150,000 to $250,000. ( 1 point for each question). QUESTION 1 The scenario above reflects which of the following: a. A type 1 subsequent Event. b. A type II subsequent Event. c. A contingent liability that only impacts the 2020 financial statements and audit report. d. Doubt as to Dundler-Mifflin's ability to continue as a going concern. QUESTION 2 Assume that audit risk is set at low by the auditors for the 2019 audit. NIBT is $1,000,000. Which of the following is true? a. Management is correct that the claim is immaterial and thus no disclosure in the 2019F/S notes is required. b. Management is correct that the claim is immaterial, however, disclosure in the 2019F/S notes is still required. c. Management is not correct in assessing the claim as immaterial but disclosure in the 2019F/S notes is not required. d. Management is not correct in assessing the claim as immaterial and disclosure in the 2019F/S notes is required. QUESTION 3 Given that the lawsuit was launched on December 22, 2019, what is the impact on the audit report assuming disclosure is required? a. The date on the audit report should be December 22,2019 . b. The date on the audit report should be December 24,2019 . c. The date on the audit report should be December 24, except for Note X (referring to the discussion of a lawsuit) for which the date is December 22 . d. None of the above. USE THE BELOW TO ANSWER QUESTIONS 1-3 Assume that you completed your audit fieldwork on the Dundler Miflin (DM) audit (year-end is October 31, 2019) on December 24, 2019. You learned that a lawsuit was launched against DM on December 22, 2019. They are being sued for $400,000 by a customer after they were seriously injured with a six-inch paper cut on November 2, 2019, that required multiple surgeries and left him with significant medical expenses. Through inquiries of management, you learn that they believe the claim/lawsuit has a remote likelihood of an unfavorable outcome and thus need not be disclosed in the F/S or F/S notes. You send an attorney inquiry letter, and the attorney indicates that they believe that the likelihood of a negative outcome on the claim is more than remote but less than probable. If the claim is successful, they estimate the damages to be in the range of $150,000 to $250,000. ( 1 point for each question). QUESTION 1 The scenario above reflects which of the following: a. A type 1 subsequent Event. b. A type II subsequent Event. c. A contingent liability that only impacts the 2020 financial statements and audit report. d. Doubt as to Dundler-Mifflin's ability to continue as a going concern. QUESTION 2 Assume that audit risk is set at low by the auditors for the 2019 audit. NIBT is $1,000,000. Which of the following is true? a. Management is correct that the claim is immaterial and thus no disclosure in the 2019F/S notes is required. b. Management is correct that the claim is immaterial, however, disclosure in the 2019F/S notes is still required. c. Management is not correct in assessing the claim as immaterial but disclosure in the 2019F/S notes is not required. d. Management is not correct in assessing the claim as immaterial and disclosure in the 2019F/S notes is required. QUESTION 3 Given that the lawsuit was launched on December 22, 2019, what is the impact on the audit report assuming disclosure is required? a. The date on the audit report should be December 22,2019 . b. The date on the audit report should be December 24,2019 . c. The date on the audit report should be December 24, except for Note X (referring to the discussion of a lawsuit) for which the date is December 22 . d. None of the above